Gold edged higher on Tuesday, extending gains in the previous session, with healthy physical demand out of Asia and a lower dollar lending support, though an improved global economic outlook has dampened the price outlook.
Euro zone finance ministers discussed on Monday having more money in their rescue fund and cheaper emergency loans as part of a package of measures to end the sovereign debt crisis, but they made no firm decisions.

Spot gold edged up 0.3 percent at $1,365.85 an ounce by 0642 GMT, after dipping to an intraday-low just below $1,360.

U.S. gold futures gained 0.4 percent to $1,366.

This week's U.S. banks earnings, expected to be strong, could give investors more reason to be optimistic about the sector and the economy in general.

"Positive sentiment in the market could reduce some safe-haven demand for gold," said Ong Yi Ling, an analyst at Phillip Futures. Ong said that $1,350 would be a strong hold for gold.

According to Wang Tao, a Reuters market analyst, spot gold will be rangebound between $1,354 and $1,370 for one trading session before plunging again towards $1,349 per ounce, as the downtrend is still intact.

"We will see quite a bit of bargain hunting if price dips below $1,360. Prices are unlikely to drop much, because the physical demand ahead of the Lunar New Year will help support the prices," said Li Ning, an analyst at Shanghai CIFCO Futures.

Premiums for gold bars rose on Monday to hit another two-year high as jewellers from China rushed to buy ahead of the Lunar New Year, while purchases from the electronics sector helped stir up physical trading in Japan, dealers said.

"Demand for physical gold from Hong Kong, Indonesia and Thailand are very good. We see some good buying from Thailand," said a Singapore-based dealer, adding that premium for gold bar in Singapore stood at $1.90 an ounce above London spot prices.

The dollar index inched down on Tuesday.

"Euro zone's economy has gradually entered the recovery track. As a result, we may see euro stabilising this month. Meanwhile, the market lacks the momentum for the dollar to rally in the first half of the year," said Li of Shanghai CIFCO.

After rallying 30 percent in 2010, gold has lost about four percent so far this year, being the second worst performer of the complex just after silver.

The medium- to long-term outlook on gold remains bullish, but gold is seen losing steam after economic outlook in the U.S. and Europe improves, luring investors to riskier assets, analysts said.

Spot silver gained more than half a percent at $28.42 an ounce, down eight percent so far this year.